5 Increasing Cash-Flow Backed Stocks You Should Pick Now
Investing one’s hard-earned money in stocks with high profits and impressive earnings surprise records is a common practice during the final leg of a reporting cycle. Rather than brooding too much on profit numbers, judging a company’s resiliency by assessing its efficacy in generating cash flow can be far more rewarding.
In this regard, stocks like PDC Energy, Inc. PDCE, Louisiana-Pacific Corporation LPX, Encore Wire Corporation WIRE, Arcos Dorados Holdings Inc. ARCO and GeoPark Limited GPRK are worth buying.
This is because cash indicates a company’s true financial health. It offers the flexibility to make decisions, the means to make potential investments as well as the fuel to run its growth engine. In fact, even a profit-generating company might face bankruptcy while meeting obligations, if it is low on cash flow. Nevertheless, a sturdy cash balance can cushion these firms in case of any market turbulence.
Moreover, analyzing a company’s cash-generating efficiency holds more relevance in the current context with uncertainties in the global economy, market disruptions and dislocations, as well as liquidity concerns resulting from geopolitical tensions or the pandemic.
To figure out this efficiency, one needs to consider a company’s net cash flow. While in any business cash moves in and out, it is net cash flow that explains how much money a company is actually generating.
If a company is experiencing a positive cash flow, it denotes an increase in its liquid assets, which gives it the means to meet debt obligations, shell out for expenses, reinvest in the business, endure downturns and finally return wealth to shareholders. On the other hand, a negative cash flow indicates a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.
However, having a positive cash flow merely does not secure a company’s future growth. To ride on the growth curve, a company must have its cash flow increasing because that indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running its business.
Therefore, keep yourself abreast with the following screen to bet on stocks with rising cash flows.
Screening Parameters:
To find stocks that have seen increasing cash flow over time, we ran the screen for those whose cash flow in the latest reported quarter was at least equal to or greater than the 5-year average cash flow per common share. This implies a positive trend and increasing cash over a period of time.
In addition to this we chose:
Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Average Broker Rating 1: This indicates that brokers are also highly hopeful about the company’s future performance.
Current Price greater than or equal to $5: This sieves out low-priced stocks.
VGM Score of B or better: This score is also of great assistance in selecting stocks. Importantly, this scoring system helps in picking winning stocks in their industry categories.
Here are our five picks out of the 13 stocks that qualified the screening:
PDC Energy, Inc., headquartered in Denver, CO, is an independent upstream operator engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.
The Zacks Consensus Estimate for PDC Energy’s 2022 earnings has moved 6.4% north to $17.31 over the past week. PDCE currently carries a VGM Score of A.
Louisiana-Pacific Corporation is a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction.
The Zacks Consensus Estimate for Louisiana-Pacific’s 2022 earnings has been revised 14.2% upward to $14.87 per share in a week. LPX currently has a VGM Score of A.
Encore Wire is a low-cost manufacturer of copper electrical building wire and cable. The company is a significant supplier of both residential wire for interior electrical wiring in homes, apartments and manufactured housing, as well as building wire for electrical distribution in commercial and industrial buildings.
The Zacks Consensus Estimate for Encore Wire’s 2022 earnings has been revised upward to $19.18 from $10.74 in a week. WIRE has a VGM Score of A.
Arcos Dorados operates as a franchisee of McDonald's, with its operations divided in Brazil, the North Latin America division, South Latin America and the Caribbean division. It also runs quick-service restaurants in Latin America and the Caribbean.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 earnings has been revised upward by a penny to 40 cents per share in the past month. ARCO currently sports a VGM Score of A.
GeoPark Limited is an explorer, operator and consolidator of oil and gas. The company operates primarily in Chile, Colombia, Brazil and Argentina. GeoPark Ltd is based in Hamilton, Bermuda.
The Zacks Consensus Estimate for GeoPark’s 2022 earnings has moved up 2.8% over the past month. GPRK currently has a VGM Score of A.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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LouisianaPacific Corporation (LPX) : Free Stock Analysis Report
PDC Energy, Inc. (PDCE) : Free Stock Analysis Report
Encore Wire Corporation (WIRE) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
Geopark Ltd (GPRK) : Free Stock Analysis Report
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